Research on the relationship between China's Underground Economy and Inflation: an Empirical Study Based on the MSVAR Model

摘要

This paper uses MS (2)-VAR (1) model to study the influence of the Chinese underground economy scale change on the inflation. The research result indicates: Chinese underground economy scale changes possess "two-regime" characters, that is, small scale stage and large scale stage. At present, Chinese underground economy is moving towards the large scale stage. The influence of underground economy scale change on the inflation varies outstandingly when underground economy at different stages. If underground economy is at the small scale stage, its influence on inflation is weak; however, if it is at the large scale stage, it has greater influence and enhances inflation.